Rs 13,000 cr for shareholders: Takeaways from Infosys Q4 results

EBIT growth, dividends, buyback, new co-chairman among key developments

Markets gave thumbs-down to Infosys’ fourth quarter numbers for the financial year 2016 – 17 (Q4FY17) with the stock tumbling nearly over 2.5%, or Rs 24, to Rs 945 levels in morning trade on the National Stock Exchange (NSE). It hit a low of Rs 941 and a high of Rs 990.

“Infosys 4Q revenues were marginally lower-than-expected, impacted by unexpected challenges in execution and other distractions. However, margins came in above our expectations, which is a positive. The company has been deriving operating efficiencies through automation and artificial intelligence," said Dipen Shah, senior vice-pesident for PCG research, Kotak Securities in a post results note.

"FY18 guidance is marginally lower than what we had expected. While the guidance does reflect the challenging macro environment, we believe it does incorporate some degree of conservatism after several quarters of guidance misses. The implied CQGR of about 2.5% in FY18, seems achievable," he adds.

 
Here are the key highlights of the Q4FY17 results:
 
 
Net profit & revenue: For the quarter ended March 2017 (Q4FY17), Infosys reported a consolidated net profit of Rs 3,603 crore, up 0.2% year-on-year (y-o-y) basis, but down 2.8% quarter-on-quarter basis. Revenue for the period stood at Rs 17,120 crore, as compared to Rs 16,550 crore in the year ago period. For the full year – FY17 – the revenue stood at Rs 68,484 crore as compared to Rs 62,441 crore in FY16.
 
Dividend payout / Buyback: One of the most significant announcements Infosys made while announcing its Q4FY17 results was in its capital allocation policy, which it revised taking into consideration the strategic and operational cash requirements in the medium term.
 
Infosys currently pays dividends up to 50% of the post tax profits in a financial year. Starting FY18, the company will raise this to 70% of the free cash flow of the corresponding financial year. That apart, the Board has decided to pay Rs 13,000 crore to shareholders by way of dividend or buyback during FY18, subject to necessary approvals.
 
The buyback / dividend amount, analysts feel could have been more. By comparison, software exporter, TCS, had recently announced a buyback of its equity shares at Rs 2850 apiece amounting to Rs 16,000 crore. CLICK HERE FOR THE FULL STORY
 
Guidance: Infosys expects its FY18 constant currency dollar revenue growth at 6.5-8.5%, which was lower than analysts' forecast of 7-9%.
 
“Growth outlook for next year will be the focal point of results and we expect Infosys to guide for a 7 – 9% year-on-year (y-o-y) growth for FY18E in CC terms,” analysts at Jefferies had said in a results expectation note.


 
EBIT growth: Infosys has guided for an EBIT (earnings before interest and taxes) growth of 23 – 25%, which is lower that what analysts had expected.
 
Analysts at ICICI Securities, for instance, expected EBIT margins to remain unchanged q-o-q to 25.1%, led by operational efficiency offset by currency headwind. “We expect Infosys to guide for 7 – 9% constant currency revenue growth, pricing trends, M&A strategy and deal pipeline,” they had said in a recent note.
 
Board changes: Infosys has appointed Ravi Venkatesan, an independent director as co-chairman of the Board.
 
“Venkatesan, who has been on the Board of Infosys since April, 2011 has made valuable contribution to the development of strategic direction of the Company during his tenure. He will help me enhance the board engagement in supporting the Management in execution of company’s strategy”, said R. Seshasayee, Chairman of the Board in a statement.